5 reasons Japan's automakers should be optimistic about 2023

TOKYO — Japanese automakers, like their global counterparts, have had a rough run in recent years, with the COVID-19 pandemic, supply chain mayhem, the war in Ukraine, rising inflation, higher interest rates and the breakneck race to plow billions into electric vehicles.

But Japan's manufacturers have some good reasons to be hopeful their lot will improve in 2023. Production is on the upswing, electrification plans are gaining momentum and the wild ride of fluctuating exchange rates seems to be settling down.

Here are five reasons Japan's automakers should be optimistic about the new year, along with one big reason to remain wary:

Japan's government is paving the way forward with new rules for a new era.

Among the initiatives are overhauled regulations that will ease the build-out of EV fast-charging networks in Japan and allow Level 4 autonomous driving on public roads.

Relaxing the safety regulations and red tape around installing fast-charging networks will slash infrastructure costs and address a key impediment to EV adoption in Japan — the lack of stations.

Meanwhile, new rules allowing Level 4 driving are envisioned as creating a much needed local test bed for both established players and startups, stepping up Japan's autonomous technology efforts. These rule changes could become reality by the end of 2023, local media report.

Japanese brands expect a new surge of revenue this year from some big product launches.

Acura is adding a performance Type S variant for the resurrected Integra, while Honda is banking on a redesigned 11th-generation Accord sedan with the latest version of its hybrid technology.

Lexus is finally getting serious about EVs with the long-delayed RZ battery-electric crossover, and is introducing a new nameplate, the TX, as a three-row luxury SUV for families.

Toyota follows with its own three-row crossover, the new Grand Highlander, then plans to revive interest in hybrids with the debut of a sexy next-generation Prius.

Subaru gets a redesigned Impreza as well as makeovers of the Forester and Crosstrek crossovers. And Mazda is amping up its crossover positioning with the introduction of the newly minted, top-shelf CX-90, a replacement for the CX-9 that will get a plug-in hybrid option.

The Japanese yen plunged to three-decade lows against the U.S. dollar over the course of just months last year. That was a boon for yen-denominated parent-company earnings, but the volatility stoked the costs of importing raw materials and parts and created havoc for business planning.

The yen hit bottom late last year, but has now climbed back into more comfortable territory.

While the yen's appreciation improves its purchasing power, the currency is still at 20-year lows against the dollar, which preserves much of the foreign exchange profit windfall. A gradual stabilization of the yen against the dollar this year at a more balanced but still lofty level would be a welcome scenario to many in the domestic industry.

Japanese automakers weren't immune to the global semiconductor shortage over the past two years. And while supply is expected to remain patchy into 2023 and possibly beyond, the country's carmakers are now ramping up production and expect to make up ground in the new year.

Factory volumes increased for the fourth straight month in November, although combined global output of Japanese manufacturers is still slightly below pre-pandemic levels.

Some automakers are faring better than others.

Output through November is still below 2021 levels at Nissan, Mitsubishi and Honda, while Toyota, Subaru and Mazda posted gains and are on an upward trajectory for 2023. As a bellwether for domestic makers, Toyota is leading the rebound. It achieved record global output for November, despite earlier warnings of market uncertainties.

After a four-year hiatus, the Tokyo Motor Show finally returns in 2023. In a nod to changing times, the event's organizers plan to bring new global attention to the Japanese industry's ambitions in advanced vehicle technologies. Asia's erstwhile premier car conclave will be rechristened the Japan Mobility Show.

At the last gathering in 2019, only four international brands bothered to show up. But Akio Toyoda, chairman of the Japan Automobile Manufacturers Association, hopes to rediscover Japan's mojo with a bigger tent that includes startups and new industrial sectors.

When the event reconvenes for media days Oct. 25-26, it will be a chance for the country's carmakers — Toyota, Honda, Nissan, Subaru, Mazda, Mitsubishi and Suzuki — to show that innovation and excitement are alive and well in Japan and that manufacturers here are ready for a bold new era of change.

Despite all the reasons to be confident about a better 2023, the biggest spoiler could be the teetering economy. Rising interest rates may eat away at consumer confidence in the U.S., while the return of COVID-19 in China spells new risks for the world's biggest auto market.

If demand deflates or production peters out in either country, it could unravel the rebound of Japanese carmakers, which rely on the U.S. and China for the lion's share of their global sales.

Last month, S&P Global Mobility forecast that U.S. sales will climb about 7 percent to 14.8 million vehicles in 2023. That would be an uptick from 2022, which saw volume drop 13 percent through November. But China could be a drag: The China Association of Automobile Manufacturers predicts that after growing some 9.4 percent in 2022, the China market will increase just 1.3 percent this year.